Economic Logic, Too

About Me

I discuss recent research in Economics and various events from an economic perspective, as the name of the blog indicates. I plan on adding posts approximately every workday, with some exceptions, for example when I travel.

Wednesday, July 31, 2013

There is plenty of evidence that being beautiful helps you on the job market. First impressions count a lot, and physical appearance is likely the main factor in first impressions. But does beauty matter in situations where there are no such first impressions? Take the case of scholarly publishing: editors and referees do not see a picture of the author(s), thus it should not matter. If it still matters, it must be that beauty is correlated with something that makes your more likely to get published, say, confidence or more subtly that beautiful people are more healthy, and thus should have had less illness disruptions in schooling and have more human capital. Anyway, we need some evidence.

Alexander Dilger, Laura Lütkenhüner and Harry Müller want to offer some. They asked attendees at a conference of business researchers about their happiness, took their pictures and had others judge these mug shots. They then looked for the publication records of their subjects over the next two years. It turns out that happy people publish more, but of course the causality could run the other way, as you may be happy that your research agenda is progressing well, especially when you are asked about your happiness at a conference in your research field. Maybe more interesting is that a trustworthy appearance is correlated with a better publication record. Is it really the appearance that matters here, or simply that a person who is capable of keeping himself in order is also more likely to be well organized to publish well? Also the population under study (n=49, by the way) is faculty from business schools. It is notorious that in business schools appearances matter a lot, and after law schools it is where it matters the most. Not the kind of sample I would use to make general claims about the research productivity of scholars as it relates to appearance.

Tuesday, July 30, 2013

Much has been written lately about the rise of the top one percent earners in the United States, yet it very little about why this rise has happened. Indeed, this rise in only partially visible elsewhere in the world, which may hint that factors that are not universal may play an important role, and thus there is potential for policy if you want to revert this rise.

Facundo Alvaredo, Anthony B. Atkinson, Thomas Piketty and Emmanuel Saez notice that the rise seems to be most pronounced in English-speaking countries, and they try to identify which factors could lead to such differences in the income share of the top one percent over time and space. They come to the conclusion that there are four factors in play: 1) Tax policy, and especially tax rates for top incomes. There is simply more left after taxes for top earners, but as the other factors show, the impact is larger than that. 2) Lower top tax rates lead to incentives that make it more worthwhile for the top earners to get a larger share of the surplus. This redistribution of the surplus would be consistent with the reduction in the labor income share and the stagnation of wages for large parts of the wage distribution. 3) Capital income is becoming independently more important, especially in Europe where inherited wealth makes a comeback. 4) The correlation between earned income (from labor) and capital income has increased a lot in the United States, widening the distribution of total income. Given all this, I find it difficult to imagine a model of optimal taxation that would not involve an increase in top marginal tax rates.

Monday, July 29, 2013

A housing bubble is sustained by expectations of further increases in house prices. There is strong suspicion that this is what happened during the US housing boom preceding the last crisis, and that these expectations have triggered excessive mortgage borrowing. Actually verifying that claim is not that straightforward, though, as one needs to find extensive household level data.

Steven Laufer found this for Los Angeles County with panel data that tracks a property and all its mortgages. He comes to the sad conclusion that only 30% of mortgage defaults there were a result of household level shocks. The rest is all about borrowing and mostly extracted additional cash excessively with the expectation that the loan-to-value ratio would be reduced as house prices continue to grow. When this did not materialize, massive defaults resulted. Using the estimation model, Laufer finds that could have been mostly avoided by imposing the 80% loan-to-value ratio. Although this would have lowered house prices by a considerable 14%, this would have reduced defaults by 28%, as small number given the price drop but a large one considering the number of defaults. And house prices in LA are too high anyway.

Sunday, July 21, 2013

A year ago, I modestly called on the AEA to open its ranks officers to those who are not at (mostly private) elite universities. They are not representative of the profession, as many of us work at lower ranked research universities, liberal arts colleges, government, industry and think tanks. They all deserve some representation as their interests differ quite a bit from big shots with almost guaranteed grants and easy access to top journals and conferences.

At the time, I suggested to write in Gregory Burge (link corrected) on the election ballot. As the AEA did not disclose election results (if it did, please tell me where), I have no idea whether it had any impact. I suggest to try again this year. Last year, I posted about this when I got the ballot, which may have been too late. This year, I make the call earlier, so that more people can adjust their vote. Indeed, the candidates this year are:

For President-elect:
Richard Thaler, The University of Chicago Booth School of Business

For Vice-Presidents:
David Card, University of California, Berkeley
Judith Chevalier, Yale School of Management
N. Gregory Mankiw, Harvard University
Jeffrey Wooldridge, Michigan State University

For Executive Committee:
Dora Costa, University of California, Los Angeles
Guido Imbens, Stanford Graduate School of Business
David Laibson, Harvard University
John Williams, Federal Reserve Bank of San Francisco

While there is at least someone for a non-university environment and three candidates from public universities, which is an encouragement, this is still far from representative. Vote for Gregory Burge (write-in) for every position.

Monday, July 1, 2013

The recent financial crisis has highlighted the sometimes very poor financial choices of households, in particular overborrowing. What leads people to borrow beyond their means or to take excessive risk of default or bankruptcy? Is it because of predatory lending with perverse incentives for loan underwriters? Plain stupidity of the borrowers? Or rational exuberance?

Dimitris Georgarakos Michael Haliassos and Giacomo Pasini look at Dutch data and find rather something that looks like social pressure. Indeed, they find that borrowing is heavier among those who consider themselves poorer than their peers. In other words, they are trying to keep up with the Jones in the sense that they want to display the same material wellbeing as their peers, on a borrowed dime. I do not know how much peer pressure there is in the Netherlands, but I can imagine a series of countries where such pressures would be important, where you need to fit in by having the right car or the right house, or by taking the right vacations. And it seems unavoidable that some people will overextend themselves in such an environment.